A dwindling skilled labor pool has driven down unemployment among U.S. construction workers to a 10-year low in July 2016. The average hourly wage for construction workers hit $29.98 per hour, more than 3.5 percent higher than in July 2015 and outpaced the national average annual wage growth rate of 2.4 percent. The resulting fierce competition for talent has left contractors feeling the heat, with some projects facing costly delays.

“Many of the construction workers who brought real estate to life during the 2005 to 2008 boom left the industry permanently during the global financial crisis,” says Todd Burns, President of Project and Development Services at JLL. “As a result, the construction labor pool today is 23 percent smaller than it was in 2007, and is showing signs of leveling out in terms of organic growth.”

Regional differences emerge in labor market outlook

Yet when it comes to labor challenges, not all markets are created equal across the U.S. Recent JLL research forecasts that, while construction costs are highest in the Northeast and West Coast major markets, construction volumes and job openings will have slowed in these areas in the latter part of 2016. Meanwhile, construction volumes in the Midwest and Southern markets are maintaining their steady upward trajectory.

Burns attributes the differences to greater volatility and faster reactions to financial markets in the pricier Northeast and West Coast markets. “The Midwest real estate market generally takes a bit longer to respond to market shifts, while the Northeast is very reactionary to financial news,” he says.

Other factors are also at play. “We’re seeing a big trend of corporate relocation to more affordable markets in the Midwest and the South, which is creating a construction boom for new office space,” adds Mason Mularoni, Project and Development Services Research Analyst.

Builders are also making an effort to expand the pool of available workers. “There’s more union hall recruitment happening than I’ve ever seen in this industry,” says Burns. “But contractors are also getting creative to attract people who don’t want to join a union, such as setting up non-union subsidiaries.”

Despite such measures, the U.S. construction labor pool is likely to remain squeezed in the near future. Data analyzed by JLL suggests that, even as some U.S. markets in the Northeast and West Coast regions begin to slow, companies can still expect to pay top dollar for skilled trade labor across many of the major markets, driving up costs and creating delays into the near future.

“To successfully keep projects on schedule, project sponsors should try to streamline project planning so that labor can be booked as early as possible,” advises Burns. “And I don’t see labor costs coming down in the near term, so companies will have to ride this labor cost bubble for the next couple of years.”

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